Before submitting your loans, you will need to ask yourself honestly, what is my current company’s financial standing?
Here’s what you should be looking out for:
1) Personal Credit Profile
Although your personal credit bureau is more relevant to getting a personal loan, when applying for a business loan, your personal credit bureau would also be used by the bank as a gauge of your character as the director of your business. If your personal credit bureau score is good, there will be a higher chance of getting your business loan approved.
P.S. If you like to understand more about credit bureaus, you may click on the video link at the top of the video or here to understand more.
2) Company Cashflow and Debt Serviceability
You can gauge the ability of your business to pay off loans by determining your cash flow and if there is any clear planning for it. If your cash flow in your bank account shows that you can clearly pay off your monthly loan obligations (minimal risk of late payment), there will be a higher chance for the bank to approve your loan.
3) Incoming Sales
Banks would want to see that your company has a good track record of incoming sales. Having a good track record of incoming sales not only means that the service/product quality you are providing is good and highly sought after, but it also indicates that your business is receiving consistent revenue and it adds to your credibility.
Therefore, to increase the chance of approval, you need to show the bank that your company has a strong and consistent stream of revenue every month, which serves as a stamp of approval that you are able to deliver future payments accordingly.
4) Years in Business
Having a company with a longer history indicates a strong sign of stability to the lender – as many SMEs are unable to survive for more than 2 to 3 years.
Therefore, banks will prefer a business that has a minimum of 2-3 years of operational history before they choose to proceed further with the loan application.
5) Purpose of Loan
Lastly, you should know that there are various types of loans available and they are all designed for specific purposes – borrowing money to purchase inventory for your business is different from borrowing money to open a new outlet. For example, if you intend to purchase inventory, you should take up Trade Financing, and if you intend to open a new outlet, you should take up a Term Loan.
Furthermore, you will also need to know if you are looking for a short-term loan, a long-term loan, or a line of credit.
Ultimately, the bank is looking at a few main things.
1. Repayment Ability: Are you able to pay the loan?
2. Character: Will you pay the loan?
3. Fulfilling monthly obligation: Do you have enough cash flow to sustain the loan repayments?
If you are able to prove to the bank that you can meet those criteria, you will be able to get a business loan.
We hope that you’ve all learned something today! If you’re interested in applying for a business loan, we are more than pleased to help you!